On 31 January 2022, the United Arab Emirates announced that all seven emirates will be enforcing federal Corporate Tax on business profits. This means that UAE-based companies will be assessed with corporate tax starting 1 June 2023.
The announcement is evidence of the country’s major shift in its positioning as a highly attractive destination for foreign investors. UAE is known for providing tax-free status to business owners and its enforcement of low, 5% value added tax in 2018.
Corporate Tax on Business Profits from 1 January 2023
UAE is said the impose a statutory tax rate of 9% for taxable income exceeding AED 375,000 ($102,000) and 0% taxable income up to that amount to support start-ups and small businesses.
According to UAE Ministry of Finance authorities, the corporate tax regime will feature competitive provisions that are designed to uphold its attractiveness among foreign investors. Authorities assures that the new corporate tax regime will uphold the compliance burden be kept to a minimum for businesses that are able to prepare and keep financial statements up to date. The necessary transfer pricing and paperwork requirements will be applicable to UAE businesses with reference to the transfer pricing guidelines set by OECD.
UAE-based businesses will be mandated to file at least one corporate tax return each financial each. Additionally, businesses will not be deemed to make advance payments or prepare provision tax returns once the corporate tax regime is enforced.
Working individuals on the other hand will not be levied with tax on their employment incomes, real estate, equity investments and other personal incomes that are not related to UAE-based trading or business activities. Corporate Tax will also not be applicable to foreign investors who are not conducting business in UAE.
According to the Ministry of Finance, free zone businesses will continue to be eligible for corporate tax incentives, as long as they meet all the necessary requirements. This is good news to companies located in the different UAE free zones that have long enjoyed 0% taxes, full foreign ownership, among other benefits.
This announcement is perceived as a natural progressing of leading economies such as the UAE. By setting a minimum corporate tax, the UAE takes a huge leap in adhering to international standards on tax transparency while preventing harmful business practices.
Expert Consulting for Foreign Investors Looking to Do Business in the United Arab Emirates
With an extensive global service network across different strategic jurisdictions, Damalion offers expert consulting and guidance on how to start a business in the UAE and other leading investment markets in the world. If you wish to learn more about our comprehensive consulting solutions, including company formation, taxation, compliance, company management, and more reach out to a Damalion expert today.
This information is not intended to be a substitute for specific individualized tax or legal advice. We suggest that you discuss your specific situation with a qualified tax or legal advisor.
